A ServiceNow Inc. sign during the Nvidia GPU Technology Conference on March 20, 2025 in San Jose.
David Paul Morris | Bloomberg | Getty Images
Software stocks fell further on Thursday, continuing a sharp decline this year as growing concerns that artificial intelligence could upend many companies’ business models drove investors away from the sector.
of iShares Enhanced Technology Software Sector ETF (IGV) Stocks fell about 5% in morning trading, the biggest single-day decline since April of last year during the tariff-induced economic slump. The fund is currently down about 21% from its recent high, pushing the software industry into bear market territory and highlighting how quickly Wall Street’s sentiment toward one of its once-popular industries is changing.
Month-to-date, IGV is down about 14%, the worst pace since October 2008, when the fund fell 23%.
iShares expands technology and software sector ETF in one year
ServiceNow 5 days
“Good, but not good enough,” Morgan Stanley analysts said in a ServiceNow report. “In an environment of increasing investor skepticism toward incumbent application vendors, steady growth in line with expectations is likely not enough to change the narrative.”
Pressure is building across the sector as investors question whether AI competitors and automation tools could erode demand for traditional software licenses and workflows. Valuations once justified by steadily increasing subscription costs are being reassessed as investors assess the possibility that AI will permanently reduce long-term revenue potential.
mega cap microsoft Further pressure came after the company reported slowing cloud growth in the second quarter, dropping about 10%, marking the stock’s biggest one-day decline since March 2020. The company also announced a slower-than-expected outlook for operating margins in the third quarter.
Investor fears are amplified by the rapid pace of AI development itself. Anthropic released Claude Opus 4.5 late last year. This is the third major model launch in just two months. The company says the model is excellent at assisting with coding, computer operations and complex enterprise tasks, and ideal users include professional software developers and knowledge workers such as financial analysts, consultants and accountants.
“What’s kind of embarrassing is that Anthropic was able to invent it, collaborate on it, and get it out there in 10 days, and everyone might look at that and say, ‘Wow, why doesn’t Microsoft do that? Why don’t I know about that?’ And that’s a narrative that they need to fix,” Ben Reitz, director of technology research at Melius Research, said on CNBC’s “Squawk on the Street.” “I think your patience is the limit on the streets.”
Also on Thursday, SAP Shares fell as much as 14% after the German software giant reported lower-than-expected growth in cloud contract balances in the fourth quarter. The current cloud backlog rose 16% to 21.1 billion euros ($25.3 billion), below expectations for growth of about 26%, which UBS analysts called a “disappointment.”
ServiceNow CEO Bill McDermott sought to counter investor fears during an earnings call Thursday, saying concerns about AI displacing software vendors are misplaced.
“The real results will come when trillions of tokens move beyond pilots and into the workflows where business decisions are made,” McDermott said. “ServiceNow is the gateway to this change, serving as the semantic layer that makes AI ubiquitous within the enterprise.”
He added that because AI systems are probabilistic, companies still need workflow software that ensures consistent business outcomes.
— With assistance from CNBC’s Samantha Subin.
